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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
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In re:
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QUIKSILVER, INC., et al.,
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Debtors.
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Chapter 11
Case No. 15-11880 (BLS)
Jointly Administered
DECLARATION OF MICHAEL J. GENEREUX IN SUPPORT
OF JOINT OBJECTION OF THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS TO (I) DEBTORS’ MOTION FOR INTERIM AND
FINAL ORDERS AUTHORIZING PAYMENT OF CRITICAL VENDORS AND
(II) DEBTORS’ APPLICATION TO RETAIN PETER J. SOLOMON COMPANY
AS INVESTMENT BANKER NUNC PRO TUNC TO THE PETITION DATE
I, Michael J. Genereux, hereby declare, pursuant to 28 U.S.C. § 1746, under penalty of
perjury:
1.
I am a Partner in the Restructuring and Special Situations Group at PJT Partners
(“PJT”), a provider of financial advisory services listed on the New York Stock Exchange that
maintains offices at 280 Park Avenue, New York, New York 10017.
2.
On September 28, 2015, Akin Gump Strauss Hauer & Feld LLP was retained,
subject to Court approval, by the official committee of unsecured creditors (the “Committee”) to
represent them in connection with the chapter 11 cases of the Debtors. 2 Effective as of September
29, 2015 and also subject to Court approval, the Committee selected PJT as its financial advisor to
assist in, among other things, analyzing the issues raised by the Proposed Financing and PSA.
1
The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Quiksilver,
Inc. (9426), QS Wholesale, Inc. (8795), DC Direct, Inc. (8364), DC Shoes, Inc. (0965), Fidra, Inc. (8945), Hawk
Designs, Inc. (1121), Mt. Waimea, Inc. (5846), Q.S. Optics, Inc. (2493), QS Retail, Inc. (0505), Quiksilver
Entertainment, Inc. (9667), and Quiksilver Wetsuits, Inc. (9599). The address of the Debtors’ corporate headquarters
is 5600 Argosy Circle, Huntington Beach, California 92649.
2
Capitalized terms used but not defined in this declaration shall have the meanings ascribed to such terms in the
Objection or the PJSC Application, as applicable.
¨1¤S2p/*,D«
1511880151013000000000012
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Over the course of the past few weeks, PJT has become familiar with the Debtors’ businesses,
finances and capital structure, as well as their chapter 11 cases.
Qualifications
3.
In 2015, I joined PJT, which is a spin-off of the financial, strategic, restructuring
and reorganization advisory services of Blackstone Advisory Partners L.P. (“Blackstone”). As part
of this spin-off, Blackstone combined with PJT Capital LP, a global independent financial advisory
firm. Prior to joining PJT, I worked at Blackstone for 13 years, most recently as a Senior
Managing Director. Prior to joining Blackstone, I was a Director at Credit Suisse First Boston in
the media and telecom group, and before that, a Vice President at Merrill Lynch & Co. in the
investment banking division.
4.
I have 21 years of experience in financial advisory services, including financial
transactions, valuation and restructuring transactions. I have led complex bankruptcies and
reorganizations across a broad spectrum of industries in a variety of capacities. I have advised
companies, equity sponsors and creditors in domestic and cross-border restructurings, capital
raises, financings and merger and acquisition transactions. In particular, I have provided services
to debtors and other constituencies in numerous chapter 11 cases, including, among others: In re
A123 Systems Inc.; In re Allen Systems Group, Inc., et al.; In re Allied Holdings, Inc., et al.; In re
Bally Total Fitness of Greater New York, Inc., et al.; In re Bear Stearns High-Grade Structured
Credit Strategies Master Fund, Ltd.; In re Caesars Entertainment Operating Co., Inc., et al.; In re
Calpine Corporation, et al.; In re Delta Air Lines, Inc., et al.; In re Dynegy Holdings, LLC, et al.;
In re Eastman Kodak Company, et al.,; In re Edison Mission Energy, et al.; In re Evergreen Solar,
Inc.; In re Fleming Companies; In re Hawkeye Renewables, LLC, et al.; In re Harry & David
Holdings, Inc., et al.; In re Hawker Beechcraft, Inc., et al.; In re Hostess Brands, Inc.; In re
Interstate Bakeries Corp., et al.; In re Legend Parent, Inc., et al.; In re Molycorp, Inc., et al.; In re
2
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R.H. Donnelley Corp., et al.; In re Spansion, Inc., et al.; In re Station Casinos Inc., et al.; In re
Smurfit-Stone Container Corporation, et al.; and In re Vitro America, LLC, et al. I have provided
expert witness testimony regarding valuation, financial and restructuring matters on numerous
occasions.
Background
5.
I submit this declaration in support of the Joint Objection of the Official Committee
of Unsecured Creditors to (I) Debtors’ Motion for Interim and Final Orders Authorizing Payment
of Critical Vendors and (II) Debtors’ Application to Retain Peter J. Solomon Company as
Investment Banker Nunc Pro Tunc to the Petition Date (the “Objection”).
6.
The statements in this declaration are, except where specifically noted, based on my
personal knowledge, on information that I have received from the Debtors’ employees or advisors
and/or employees of PJT working directly with me or under my supervision, direction or control,
or from the Debtors’ records maintained in the ordinary course of their business. I am not being
compensated specifically for this testimony other than through payments to be received by PJT as
a professional retained by the Committee. If I were called upon to testify, I could and would
testify competently to the subject set forth herein. I am authorized to submit this declaration on
behalf of the Committee.
7.
The Objection contains a full and complete recitation of the relevant background
facts. The PJSC Application seeks authority to employ and retain PJSC as the Debtors’ investment
banker, nunc pro tunc to the Petition Date, in accordance with the terms and conditions set forth in
the PJSC Engagement Letter (the “PJSC Engagement Letter”). By the PJSC Application, the
Debtors propose to pay PJSC certain fees including, but not limited to:
•
a monthly fee of $150,000 (the “Monthly Fee”);
•
$7,500,000 restructuring fee (the “Restructuring Transaction Fee”) in the event a
Restructuring (as defined in the PJSC Engagement Letter) is consummated or an
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agreement in principle, definitive agreement or plan to effect a Restructuring is
entered into; and
•
a fee in the lesser amount of (a) $7,500,000 or (b) 1.50% (the “Sale Transaction
Fee”) of the total consideration received by the Debtors in connection with a Sale
(as defined in the PJSC Engagement Letter), in the event any Sale is consummated
or an agreement in principle or definitive agreement to effect a Sale is entered into.
See PJSC Engagement Letter ¶ 2(a)-(c). If PJSC earns both a Restructuring Transaction Fee and
Sale Transaction Fee pursuant to the terms of the PJSC Engagement Letter, PJSC will only receive
the higher of the two fees. See id. ¶ 2(c).
8.
In addition to any Restructuring Transaction Fee or Sale Transaction Fee that may
become payable under the PJSC Engagement Letter, PJSC may earn an additional fee (together
with the Monthly Fee, the Restructuring Transaction Fee and the Sale Transaction Fee, the “Fee
Structure”) in connection with the Debtors’ consummation of any financing, or if the Debtors
receive and accept written commitments for one or more financings, as set forth below:
(a)
1.00% of the gross proceeds of any indebtedness issued in connection with a
financing that is secured by a first lien, including, without limitation, any
DIP financing;
(b)
3.00% of the gross proceeds of any indebtedness issued in connection with a
financing that is (x) secured by a second or more junior lien, (y) unsecured
and/or (z) subordinated or unitranche debt; and
(c)
5.00% of the gross proceeds of any equity or equity-linked securities or
obligations issued in connection with a financing.
Id. ¶ 2(d).
9.
PJT evaluated the proposed Fee Structure under which the Debtors seek to
compensate PJSC in exchange for services rendered as the Debtors’ investment banker during
these Chapter 11 Cases.
The Proposed Fee Structure Set Forth in the PJSC Engagement Letter is At the High End of
the Range and Must be Modified
10.
Based upon my review of the PJSC Application and other relevant documents, I
believe that the terms of the proposed Fee Structure are at the high end of the range for
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compensation schemes utilized by investment banking firms for comparable engagements. As
demonstrated in the chart below, I have reviewed the fee structures approved in similar chapter 11
bankruptcy cases filed since 2014, with debtor financial obligations ranging from $600,000 to
$1,200,000. Specifically, for comparability, I calculated the total compensation provided to
financial advisors and investment bankers with respect to monthly fees and success fees assuming
a 6 month period, and compared that figure to the debtor’s total liabilities as of the petition date in
each case. Based on my analysis of these cases, the median compensation, assuming a 6-month
case, constituted 0.61% of the total financial obligations of the debtor. Accordingly, I do not
believe that the proposed Fee Structure―which represents .94% of the total liabilities of the
Debtors―is market for a case such as this. Below please find the above-referenced chart
displaying cases from 2014 to present and their respective fee structures:
Fees
($ in t housands)
Company
Relat ivit y Media
Filing Dat e
July-15
Case Number
15-11989 (S.D.N.Y.)
Advisor
Blackst one
Financial
Obligat ions
$692,439
Chassix Holdings Inc.
Allied Nevada
Naut ilus
Dendreon Corp.
Endeavour
March-15
March-15
June-14
November-14
Oct ober-14
15-10578 (S.D.N.Y.)
15-10503 (Del.)
14-22885 (S.D.N.Y.)
14-12515 (Del.)
14-12308 (Del.)
Lazard
Moelis
Blackst one
Lazard
Blackst one
680,000
637,882
769,469
620,000
1,200,000
GTAT
Legend Parent Inc.
QCE Finance LLC
USEC Inc.
Opt im Energy LLC
Oct ober-14
March-14
March-14
March-14
February-14
14-11916 (N.H.)
14-10701 (S.D.N.Y.)
14-10543 (Del.)
14-10475 (Del.)
14-10262 (Del.)
Rot hschild
Lazard
Lazard
Lazard
Barclays
873,000
749,600
625,800
974,300
753,000
M ax
M edian
M ean
M in
Quiksilver - PJS Proposed
Quiksilver - M edian Applied
Quiksilver - M ean Applied
PJ Solomon
PJ Solomon
PJ Solomon
% of Financial
M ont hly Back- end Obligat ions(1 )
Credit ing of M ont hly Fees
$200
$5,000
0.90% None
150
150
175
150
175
175 - 200(3)
150
100
200
125
3,250(2)
3,000
4,500
5,500
5,000
0.60%
0.61%
0.71%
0.96%
0.50%
50% of Mont hlies above $750k
50% of Mont hlies above $900k
50% of 6-8t h, 100% t hereaft er
50% of all Mont hlies
None
5,000
3,500
3,000
7,000
3,000
0.70%
0.58%
0.53%
0.83%
0.40%
50% of Mont hlies above $1 million
50% of Mont hlies above $750k
50% of all Mont hlies
50% of Mont hlies aft er 5 mont hs
Up t o 9 Mont hlies credit able
$1,200,000
749,600
779,590
620,000
$200
150
158
100
$7,000
4,750
4,450
3,000
0.96%
0.61%
0.66%
0.40%
$850,000
850,000
850,000
$150
150
150
$7,500
4,747
5,198
0.94% 50% of all mont hlies
0.61% 50% of all mont hlies
0.66% 50% of all mont hlies
(1) Calculat ed assuming 6 mont h cases for consist ency purposes.
(2) Excludes discret ionary fee.
(3) 175,000 for first t wo mont hs, 200,000 t hereaft er.
11.
In light of the foregoing, it is my opinion that an appropriate Restructuring
Transaction Fee and Sale Transaction Fee under the current circumstances is $5 million.
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Reservation of Rights
12.
I reserve the right to rely upon any additional information that becomes available to
me after the date of this declaration and to amend or modify this declaration to reflect or
incorporate such new information or if further research or analysis warrants.
I declare under penalty of perjury that the foregoing is true and correct.
Dated:
New York, New York
October 13, 2015
/s/ Michael J. Genereux
Michael J. Genereux
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